By Matt Costa, CFP®, CPA, Foundation Wealth & Tax Advisors
In February 2018, I wrote an article for my partner’s law firm website called “Tax Planning for the Cryptocurrency Millionaire.” Bitcoin had started 2017 at $1,000 and broken $19,000 by December, and a lot of fortunes had been made. Then the market crashed right at year end and didn’t bottom until the price was back in the low four figures. It was quite the boom and bust.
Eight years later, most of that article still holds up on the tax planning. Bitcoin is still property in the eyes of the IRS. Long-term capital gains rates are still 0%, 15%, and 20%. And the holders with the best outcomes are still the ones who plan for taxes.
Some things have changed, though. The reporting rules, the accounting rules, the estate tax exemption, and the math on charitable giving are all different in 2026 than they were in 2018. If you’re sitting on a meaningful bitcoin position, here’s the updated playbook.
First, the new reality: the IRS can see you now
For years, crypto tax compliance ran largely on the honor system. That era is over.
Starting with tax year 2025, exchanges and other brokers began issuing Form 1099-DA, reporting your gross proceeds directly to the IRS, with cost basis reporting phasing in for 2026. If you sold bitcoin on an exchange last year, the IRS received a copy of that form whether you reported the sale or not.
Just as important, Revenue Procedure 2024-28 ended “universal” cost basis accounting as of January 1, 2025. You can no longer pool all your bitcoin across every wallet and exchange and cherry-pick lots from the combined pile. Basis is now tracked wallet by wallet: if you sell a coin held at one custodian, you can only use the basis of lots actually held there.
Which lots live in which wallet now determines which gains and losses you can actually harvest. Clean lot records aren’t optional anymore; they’re the foundation every strategy below is built on.
Strategy 1: Harvest gains at 0%
The most underused strategy in bitcoin tax planning has only gotten more powerful over the years, because the brackets have grown.
For 2026, a married couple filing jointly pays 0% federal tax on long-term capital gains until taxable income exceeds $98,900. From there up to $613,700, the rate is just 15%.
Consider a retired couple drawing $45,000 from Social Security and IRA withdrawals. After the $32,200 standard deduction, their taxable income is roughly $12,800, leaving room to realize about $86,000 of long-term bitcoin gains at a 0% federal rate. Sell the coins, recognize the gain, and repurchase immediately if you want to keep the position. There’s no waiting period; the wash sale rule has never applied to gains for anyone. You’ve just reset your cost basis higher, permanently, for free.
Do that every year in retirement, or in any low-income year, like a sabbatical, a business loss year, or the gap years between retiring and claiming Social Security, and you can quietly step up the basis on a substantial position without ever writing a check to the IRS.
Even holders who are nowhere near the 0% bracket should pay attention to the 15% line. Realizing gains deliberately in years when you’re under $613,700 of taxable income, rather than being forced to sell in a year when you’re above it, can save meaningful dollars.
Strategy 2: Harvest losses while the wash sale window is still open
Here’s the flip side, and it remains one of bitcoin’s quirkiest tax advantages: because bitcoin is property rather than a security, the wash sale rule still does not apply. A stock investor who sells at a loss must wait 30 days to repurchase or the loss is disallowed. A bitcoin holder can sell a losing lot, harvest the loss, and buy back the same day.
Bitcoin’s volatility makes this genuinely valuable. A 20-30% drawdown (something bitcoin does routinely) is an opportunity to bank a capital loss that offsets gains elsewhere in your portfolio (plus up to $3,000 of ordinary income per year, with the rest carrying forward indefinitely), all without giving up your position.
Two cautions. First, under the new wallet-by-wallet rules, you can only harvest losses from lots in the wallet you’re selling from, so where your high-basis lots sit matters. Specific identification of lots, properly documented, is your friend. Second, Congress knows about this asymmetry. Proposals to extend the wash sale rule to digital assets have been introduced repeatedly, though none has passed as of this writing. This window may not stay open forever. Use it while it exists.
Strategy 3: Give bitcoin, not cash (and mind the new 2026 rules)
If you give to charity at all, giving appreciated bitcoin instead makes a ton of sense. Donate coins you’ve held more than a year and you generally deduct the full fair market value (up to 30% of adjusted gross income, with a five-year carryforward), and neither you nor the charity ever pays tax on the appreciation. Donating $100,000 of bitcoin you bought for $10,000 wipes out a $90,000 embedded gain and generates a six-figure deduction.
But the 2025 tax law (the One Big Beautiful Bill Act) changed the math starting in 2026, and bitcoin donors need to know three things:
There’s now a floor. Itemizers can only deduct charitable contributions that exceed 0.5% of AGI. And for those in the top bracket, the deduction’s benefit is capped at a 35% rate rather than 37%. The planning response is bunching donations: instead of giving $25,000 every year, give $75,000 of bitcoin to a donor-advised fund every third year, clearing the floor once instead of three times. You can then grant it out to charities on your own schedule.
The appraisal trap is real and should be addressed to substantiate any deduction. Unlike publicly traded stock, bitcoin donations over $5,000 require a qualified appraisal. The exchange price on the date of the gift is sadly not enough; the IRS has taken the position that the entire deduction is disallowed without an appraisal, even when the exchange value was accurate.
The charitable remainder trust still shines as well. For holders with a large, concentrated, low-basis position, the strategy I featured back in 2018 remains one of the best tools available: contribute bitcoin to a charitable remainder unitrust (CRUT), which can sell and diversify the position without an immediate capital gains hit, pay you (or you and your spouse) an income stream for life, and deliver a partial charitable deduction up front, with the remainder going to charity. For a couple contributing $1 million of low-basis bitcoin, that can mean lifetime income from the full million, rather than from what’s left after a 23.8% federal haircut. It’s a way to solve the concentration problem, the tax problem, and a charitable goal in one structure.
Strategy 4: Estate planning with a $15 million exemption
In 2018, the estate tax exemption had just been doubled but was scheduled to be cut in half in 2026, and estate planning conversations had a “use it or lose it” urgency. That cliff never arrived: the exemption is now a permanent $15 million per person ($30 million per married couple), indexed for inflation.
That permanence changes the calculus in bitcoin holders’ favor.
Step-up at death is the ultimate tax planning. Bitcoin your heirs inherit gets a full step-up in cost basis, and the embedded gain simply vanishes. For low-basis coins you never intend to spend, the best “strategy” may be to hold them for life, which is also why borrowing against bitcoin (rather than selling it) has become popular for accessing liquidity: a loan isn’t a taxable event.
Another thing to consider is that gifting removes future appreciation. If you believe bitcoin will be worth multiples of today’s price, moving coins out of your estate now via annual exclusion gifts ($19,000 per recipient, $38,000 for couples) or larger gifts against your lifetime exemption means all that future growth escapes the 40% estate tax. The tradeoff: gifted coins carry your basis rather than getting a step-up, so which lots you gift matters. Gift high-basis coins; die holding low-basis coins.
And whatever you do, make sure your keys don’t die with you. But that’s a topic this blog has covered well already.
Concluding Thoughts
Reading my 2018 article today, what strikes me isn’t what changed; it’s what didn’t. The holders who do best are still the ones who treat tax planning as a year-round discipline of managing brackets deliberately, harvesting in both directions, giving strategically, and thinking a generation ahead.
The difference in 2026 is that the margin for sloppiness is gone. The IRS now sees your transactions, your basis must be tracked wallet by wallet, and the rules are still moving in Congress. Bitcoin may be the hardest money ever created, but the tax code around it is anything but simple, and the cost of getting it wrong compounds just like the asset does.
If you’d like help applying any of these strategies to your own situation, talk to a member of the BTC Financial Advisors Network.